Pendle Finance Explained: Fixed and Variable Yield in DeFi
Pendle lets you separate yield into fixed and variable components, trade future yield, and lock in guaranteed APY. This guide explains how Pendle works and the best strategies.
Pendle Finance tokenizes future yield, separating a yield-bearing asset into a principal token (PT) and a yield token (YT). This creates two trading markets: PTs for fixed-yield investors who want guaranteed returns, and YTs for leveraged-yield speculators who believe rates will rise.
Principal Tokens (PT): Fixed Yield
A PT is like a zero-coupon bond: buy stETH PT for 0.95 ETH today, receive 1 ETH at maturity. The implied fixed APY depends on how deeply discounted the PT trades. In 2026, PT-stETH and PT-USDC on Pendle regularly offer 8–15% fixed APY — significantly above direct staking yields.
Yield Tokens (YT): Variable Yield Leverage
YT tokens represent the right to all yield generated by the underlying asset until maturity. Buying YT is essentially leveraged exposure to yield rates: if stETH yields rise, your YT outperforms. YTs decay to zero at maturity (all yield has been distributed), making them like expiring options on yield.
LP on Pendle
Providing liquidity to Pendle pools earns trading fees, PENDLE token rewards, and underlying asset yield simultaneously. It is more complex than standard LP but often offers the highest risk-adjusted yields in DeFi. Pendle V2 improved capital efficiency significantly and became the #1 DeFi protocol by revenue-per-TVL.